Bernard L. Madoff, 70, chairman of Bernard L. Madoff Investment Securities, which he founded in 1960. One of the largest market maker companies on Wall Street. Public information on Madoff’s company is available here at its website. Arrested in 2008 for running a US$50 billion ponzi scheme.
Madoff’s company included a brokerage house and a hedge fund. According to state prosecutors, Madoff admitted to his staff this week that the hedge fund was “basically, a giant Ponzi scheme.” Investors have put in $50 billion into the hedge fund. If the hedge fund is in fact a Ponzi scheme, it has ZERO value. Basically, the vast majority of investors in the fund were just putting money directly into the pockets of Madoff and other early investors. In terms of dollar value, this may be one of the biggest frauds in American history (the Enron fraud was $63 billion).
Watch one of roundtable discussion featuring Justin Fox, Bernard Madoff, Ailsa Roell, Robert A. Schwartz, Muriel Seibert, and Josh Stampfli.
In court today, state prosecutors charged Madoff with securities fraud. The maximum sentence is 20 years in prison and a fine of up to $5 million. Madoff is currently out on $10 million bail. The Securities and Exchange Commission is filing separate charges.
Why is this such a big deal?
According to the Wall Street Journal, approximately $2 trillion are currently invested in hedge funds. The hedge fund world is the financial Wild West, with little regulation and very few people with an actual clue as to where the money is really going. Given today’s crisis in the financial markets, frauds like this may shake investors confidence in the hedge fund world. Hedge funds may be another card in the financial house of cards that is collapsing in 2008.
Hopefully, this Hofstra University alumni’s case turns out to be an isolated incident and the hedge fund world will survive, but somehow, I have trouble believing that.
Madoff information for investors